New convertible bonds find stable trading levels as market digests weekly issuance

Chicago, Nov. 18 – Investors had plenty of opportunity, for a change, to get their hands on some fresh paper in the convertible bond space as the market assimilated 10% of the annual 2022 issuance (so far) which priced in the Nov. 14 week.

The new bonds, which were sold in the wake of optimism for a retreat in the Federal Reserve’s battle against inflation, had a mixed reception, especially for the two largest deals.

Some secondary trading volume was also accounted for by corporate news, as earnings season continues and a prominent bankruptcy threatens an industry.

Wolfspeed

Wolfspeed Inc. was not worse for the wear, with another secondary trading day in the books.

While volume was slowing as the convertible bonds found longer-term owners, the company’s new issue of 1.875% seven-year convertibles were still maintaining an attractive premium on Friday, trading in a high 103 range and going out late in the day again touching 104.

Shares went out better on Friday than where they started on Monday for the semiconductor manufacturer, even on a week when the company priced a large convertible bond issue and took a hit standard with such a sale.

The shock of the new notes was alleviated on Wednesday when an announcement was made that BorgWarner would be investing $500 million in Wolfspeed, “in exchange for a silicon carbine device capacity corridor.”

The multiyear agreement helped push Wolfspeed’s stock up 1.16% from Monday to Friday, with shares closing out at $91.04.

Carnival

While Wolfspeed was up, Carnival Corp.’s new $1 billion issue of 5.75% bonds took another route.

The bonds were in play on Friday and relaxed into a 98.5 trading level (after pricing at par on Tuesday evening), jumping one way or another a few times, but generally bouncing back to approximately that price multiple times throughout the day.

Proceeds, as previously reported, are being used for principal payments on outstanding debt.

The company has a relatively modest amount of debt coming due through the end of the year and into 2023, according to the company’s second-quarter report when it delineated its debt wall.

Of the $30-billion-plus of debt the company is carrying, around $13.5 billion needs dealing with in 2024, 2025 and 2026.

That leaves somewhere around $20 billion starting in 2026.

Weighed down by desperation during a global pandemic that left ships in drydocks and passengers in lockdown mode for an extended period of time, the company is now saddled with roughly 3x-plus the amount of debt it was carrying at the same point four years ago.

The new $1 billion of bonds, with a 2027 maturity date, just cleared the most pressing maturities through 2026 and provide the issuer with more options than a straight bond.

Carnival’s stock price did take the standard new-convertible-bond hit and went out negative 9.03% for the week, falling off a cliff on Tuesday after the new offering was announced and then staying flat to end the week at $9.47.

Palo Alto

Palo Alto Networks, Inc.’s two outstanding convertible bonds, an issue of 0.375% convertible notes due 2025 and 0.75% convertible senior notes due 2023, were trading on favorable news from the issuer on Friday.

On an earnings beat and an announcement that the company will be acquiring Cider Security for $195 million, bond prices moved up.

Activity for the 0.75% convertibles wrapped by lunchtime, with the bonds better by 12 points over 24 hours.

However, there was decent volume backing trading on the 0.375% convertible notes due 2025.

And, the bonds ended Friday a full 11 to 12 points better than where they stood on Thursday, hovering around 174.

Palo Alto’s stock surged on Friday morning, ending the day up 6.97% at $167.48 after the initial enthusiasm pulled back from a peak at $173.00 per share.

Coinbase

With cryptocurrency exchanges the talk of the town, on the heels of FTX’s bankruptcy filing a week ago Friday, checking in on sector peer Coinbase Global Inc.’s 0.5% convertible bonds due 2026 to see how they fared over the course of the week revealed a surprising resilience.

The bonds were lower by around 5%, closing out the week just under 57 in Friday activity after starting the week near 60.

The company’s stock was 18.8% worse, closing Friday at $45.26 versus a Monday opening at $55.74.

Bank of America downgraded the shares to “neutral” from “buy” on Friday.

Some instability in crypto is likely to persist as details come to light regarding massive chaos in the administration of FTX before the Chapter 11 filing.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Coinbase Global Inc. Nasdaq: COIN

Palo Alto Networks Inc. Nasdaq: PANW

Wolfspeed Inc. NYSE: WOLF

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